OECD global tax deal: MNCs may tweak co structures

Mumbai: Multinationals such as Facebook, Amazon, Apple and Google, might tweak company structures or even create new units in a move that could impact tax collections in emerging economies like India when the global tax deal announced by OECD comes into effect.Some of the large social media companies could look to split their revenues under different umbrellas globally in response to the international tax reform to avoid dealing with regulators in countries such as India, tax experts said.The Organisation for Economic Cooperation and Development (OECD) had on Friday brought together 136 countries to accept a deal to ensure that large multinationals pay a minimum tax of 15% on their global incomes from 2023 and those with profits above a threshold will have to pay taxes in the markets they derive business from.The deal is set to impact some of the largest companies that have invested in India through countries such as Singapore or house some of their existing intellectual properties (IP) in tax havens like Ireland.Under India’s tax treaties these companies do not pay more than 10% tax on their revenues.Moreover, they have created intermediaries in India which essentially work as middlemen and charge a certain percentage — about 10% in most cases — as their commission on purchases of inventory from their global subsidiaries based in treaty countries.Domestic taxes are then levied merely on this amount (10%), while international taxation under tax treaties is levied on the gross revenues.“Many social media giants have various subsidiaries and complex structures,” said Ajay Rotti, partner at tax and regulatory firm Dhruva Advisors. “We will need to wait and see how these would be considered as these companies could also restructure some of the holding structures. We have seen some US majors change their IP holding structures already.”What adds to the complexity is that India will have to withdraw the equalisation levy — a 6% tax on advertising on foreign platforms and 2% tax on certain internet transactions — when the global tax deal kicks in. Many tax experts are asking whether this would be worth it.“With the global tax deal, large groups would have to relook at their structures to align the tax efficiencies with the larger business considerations globally,” said Rahul Garg, managing partner of tax and regulatory consultants Asire Consulting.When unilateral levies such as the equalisation levy go away in the long run as it is a key condition of the accord, countries like India might end up getting lower tax collected from multinationals than at present, Garg said.Google, Facebook, Amazon and Apple did not respond to the ET’s questionnaires as of publishing this story.A senior lawyer dealing with one of the four large social media giants in India said the concerns are not limited to taxation. “Tax is just icing on the cake,” he said. “The social media giant is reluctant to have any structure that increases their exposure to Indian regulators — as the fear is around unstable social media policies and other political risks.”Another legal advisor to two of the large social media firms said that even for taxation, India is still perceived as a high compliance zone. “Domestic taxes in India are still at 25%. Do you think when the global deal allows large multinationals to have a 15% tax rate anywhere in the world, they would want to move to India?” he said.The new OECD framework would mean that large companies will have to disclose their global revenues and pay taxes on that. OECD calls it pillar 1 and pillar 2. Under pillar 1, OECD will estimate the quantum of additional profits that escape taxes and which country or jurisdiction has the right to tax it. Pillar 2 consists of a minimum tax rate — 15% — that these technology companies will have to pay in these jurisdictions.Of the 140 countries, 136 including India have already supported OECD’s tax deal. The tax deal is expected to bring between $100 billion and $250 billion of global revenues of large multinationals under the tax net.

from Economic Times https://ift.tt/3Fy2uP6